>STATE BANK OF INDIA: Result Update 1QFY2011

For 1QFY2011, State Bank of India’s (SBI) standalone net profit grew 25.1% yoy and 56.1% qoq, which exceeded our estimates on account of better-thanestimated NII and lower operating expenses. Robust operating performance with reasonable asset quality was the key highlight of the result. We maintain an Accumulate rating on the stock.

Robust operating performance: The bank’s net advances increased 20.4% yoy
and 3.4% qoq to Rs6,53,220cr, while total deposits grew 6.8% yoy and 1.4% qoq
to Rs8,15,297cr during 1QFY2011. Reported net interest margin (NIM) improved
by 22bp qoq and 88bp yoy to 3.18% during the quarter despite a hit of 12bp due
to change in the method of calculation of SA interest. The margin expansion was
underpinned by improvement in the CASA ratio to 47.5% as of 1QFY2011 from
38.5% as of 1QFY2010 and from 46.7% as of 4QFY2010 coupled with shedding
of high-cost bulk deposits. Gross NPAs were up by 6.6% qoq and net NPAs
increased 1.9% qoq to Rs20,825cr and Rs11,074cr, respectively. NPA provision
coverage ratio including technical write-offs improved to 60.7% compared to
59.2% as of 4QFY2010.

Outlook and Valuation: Due to strong CASA and fee income, SBI’s core RoEs
have improved over the past few years and unlike virtually all other PSBs, actual
FY2010 RoEs are below core levels due to low asset yields, providing scope for
upside as the CD ratio improves and yields normalise to sectoral averages. SBI is
trading at 2.1x FY2012E ABV while excluding value of insurance and capital
market subsidiaries, it is trading at 1.7x FY2012E ABV v/s its 5-year range of
1.3-2.0x and median of 1.7x. We believe this provides reasonable upside,
especially in light of its dominant position and reach, strong growth and superior
earnings quality. We maintain an Accumulate on the stock, with a Target Price of
Rs3,185.

To read the full report: SBI